A recent spike in funding costs is happening at the worst time for Australia’s big banks, as intense public scrutiny crimps their ability to pass on increases to customers.The banks are fighting to defend their reputations in the face of an inquiry into misconduct and mistreatment of customers. Two weeks into hearings in front of a Royal Commission, allegations have included claims some bank staff took cash bribes to facilitate mortgages based on fake documentation, while others sold unnecessary insurance policies.At the same time, the big four lenders – Commonwealth Bank of Australia, Westpac, Australia & New Zealand Banking Group, and National Australia Bank – face a jump in their short-term financing costs both at home and offshore. The Libor-OIS differential, a key indicator of US dollar borrowing costs, has more than doubled since the end of January, and domestic three-month bank bill rates have also surged.